Financial Crime Insights for Organisations

How can global companies effectively manage financial crime?

AML KYC Team
22.02.24

More than 70% of businesses experienced fraud between 2020 and 2022, study by PwC has revealed. As the world becomes more interconnected, we see the impact of this worsening. The global fight against financial crime needs urgent attention. It’s a critical issue linked to societal and financial instability, as it allows illicit activities like terrorism, modern slavery, and drug trafficking to thrive under the radar.

The global nature of these risks necessitates robust risk management strategies that are tailored to address the unique complexities of cross-border transactions, diverse regulatory frameworks, and cultural differences. We’ll explore the multifaceted nature of financial crime and risk challenges faced by global and hybrid organisations, as well as the best practices for effectively managing financial crime and risk on a global scale.

What’s in this article?

Executive summary

Financial crime presents significant challenges for organisations globally, with repercussions ranging from financial loss to reputational damage and legal consequences. Global and hybrid organisations, in particular, face additional challenges due to their expansive operations across diverse jurisdictions. Understanding and effectively managing these challenges are imperative for maintaining compliance and mitigating risks. This involves improving cross-border collaboration and communication, increasing technological integrations, and maintaining a unified approach to risk management.

Understanding financial crime and risk challenges faced by global and hybrid organisations

Financial crime encompasses a broad range of illicit activities that undermine the integrity of financial systems and institutions. It involves illegal or unethical actions aimed at defrauding or manipulating financial processes for personal gain or to conceal illicit proceeds. Some of the most common types of financial crime include money laundering, fraud, bribery, and corruption. The consequences of financial crime for companies can be severe and far-reaching. Beyond the immediate financial losses, companies can face regulatory fines, reputational damage, and serious legal implications.

3 Challenges global and hybrid organisations face in the wake of financial crime

  1. Operating across multiple jurisdictions
  2. Handling large volumes of transactions
  3. Overcoming cultural and organisational barriers

1. Operating across multiple jurisdictions

Global companies operate across multiple legal and regulatory requirements that differ significantly from one country to another. For example, a multinational corporation may need to consider data privacy laws such as the GDPR in Europe, and anti-corruption laws like the Foreign Corrupt Practices Act (FCPA) in the United States. Further, financial reporting requirements, Anti-Money Laundering (AML) regulations, and Know Your Customer (KYC) obligations may vary across regions. Regulatory bodies may have distinct enforcement priorities, risk appetites, and approaches to supervision, further complicating compliance efforts. As a result, global companies must invest in comprehensive compliance programmes that are flexible enough to accommodate diverse regulatory environments while upholding the highest standards of integrity and transparency.

2. Handling large volumes of transactions

Global companies process vast quantities of transactions on a daily basis, ranging from payments and investments to supply chain and customer transactions. Managing this influx of data presents significant challenges in identifying and monitoring suspicious activities effectively. For example, detecting patterns of fraudulent behaviour or unusual financial transactions amidst millions of legitimate transactions requires advanced analytics tools, machine learning algorithms, and robust monitoring systems. However, the sheer volume of transactions itself also increases the risk of oversight or human error, underscoring the importance of automated solutions and continuous monitoring to mitigate risks and ensure compliance with regulatory requirements.

3. Overcoming cultural and organisational barriers

Cultural differences, communication barriers, and organisational silos can impede the sharing of information and collaboration in managing financial crime and risk. In global companies with diverse workforce cultures, language barriers, and geographical dispersion, effective communication and collaboration become essential but can also be challenging. Organisational silos, where different departments or regions operate independently, can hinder the flow of information and coordination in addressing financial crime threats. Overcoming these barriers requires a concerted effort to foster a culture of transparency, open communication, and collaboration across departments and regions.

6 Best practices for effectively managing financial crime and risk on a global scale

  1. Develop a global compliance framework
  2. Implement cross-border due diligence
  3. Leverage technology for global monitoring
  4. Facilitate cross-border collaboration
  5. Improve data quality and its use
  6. Maintain a unified risk management approach

1. Develop a global compliance framework

It is imperative that global and hybrid companies customise their compliance policies and procedures to accommodate the varied regulatory landscapes and cultural nuances of different regions. They must ensure that they are comprehensive, clear, and enforceable across all jurisdictions. Establishing a centralised compliance function responsible for overseeing and coordinating compliance activities globally will be pivotal. This ensures consistency in compliance practices and facilitates efficient communication and decision-making.

In order to educate employees across all regions about the global compliance standards and improve adherence, you should provide regular training sessions and awareness programmes.

2. Implement cross-border due diligence

Effective KYC processes are vital for any company managing financial crime and risk, however, for global and hybrid companies, enhanced KYC practices are a must. Enhanced KYC procedures take into account the unique risks associated with cross-border transactions. This may involve gathering additional information about customers, partners, and counterparties, including beneficial ownership structures and geopolitical considerations.

Conduct thorough geopolitical risk assessments to understand the political, economic, and regulatory environments of different countries. This helps in assessing the potential impact of operating in certain regions and identifying areas of heightened risk.

Although a given, you should implement comprehensive screening processes to identify individuals and entities that may be subject to sanctions, politically exposed persons (PEPs), or involved in illicit activities. Utilise screening tools that cover global sanctions lists and watchlists. Similarly, adopt robust third-party risk management processes to assess and monitor the risk posed by vendors, suppliers, and business partners operating in different jurisdictions. This includes due diligence, contract provisions, and ongoing monitoring of third-party activities.

3. Leverage technology for global monitoring

Technology is transforming the way we manage financial crime and companies that do not embrace these advancements risk falling behind. This is particularly true for KYC automation, which can improve the efficiency and effectiveness of global monitoring.

Advanced analytics and AI are both game-changing for global companies. Deploying advanced analytics, artificial intelligence (AI), and machine learning (ML) algorithms enables you to analyse vast volumes of transactional data from across the globe in real-time. These technologies can identify anomalous patterns indicative of financial crime, such as money laundering or fraud.

Invest in sophisticated transaction monitoring solutions that are capable of detecting suspicious activities across diverse geographies and business lines. These solutions should be customisable to accommodate regional nuances and evolving threats.

Furthermore, AI solutions can integrate data from disparate sources and visualise insights through dashboards and reports. This enables better decision-making and proactive risk management by providing a holistic view of financial crime risks across the organisation’s global footprint.

4. Facilitate cross-border collaboration

Cross-border communication and collaboration is key for seamless operations in a global company, in any department. Aim to actively participate in information-sharing initiatives, such as industry forums, public-private partnerships, and regulatory networks, to exchange insights and best practices for combating financial crime on a global scale. Public-Private Partnerships, also known as PPPs, must be improved. This collaboration involves financial institutions, law enforcement, policymakers, and regulators working together and is imperative to developing an intelligence-driven approach to tackling financial crime effectively.

This should also include fostering partnerships with law enforcement agencies and regulatory bodies in different jurisdictions to facilitate the investigation and prosecution of financial criminals. Share relevant information and intelligence to support enforcement efforts.

Consider conducting joint training sessions and exercises with external stakeholders to enhance collaboration and coordination in responding to financial crime threats. This includes simulated scenarios and tabletop exercises to simulate real-world situations and test response capabilities.

5. Improve data quality and its use

Data has the potential to bring about transformative change, particularly through the improvement of how you store and access your organisational data. By adopting systems that establish a ‘single version of truth’ that can be used to meet KYC and Customer Due Diligence (CDD) requirements, you can help bring together the currently fragmented KYC data landscape. The current landscape can be characterised by various financial institutions holding data on the same individuals, which frequently results in overlaps, redundancies, or even discrepancies within the data. Such inconsistencies not only impede the efficiency of KYC and CDD processes but also pose risks to compliance efforts and overall operational effectiveness.

Additionally, by consolidating data into a centralised repository, organisations can streamline their processes, reduce duplication of efforts, and enhance operational efficiency.

6. Maintain a unified risk management approach

In the realm of financial crime management, maintaining a unified risk management approach is indispensable for global organisations seeking to fortify their resilience against evolving threats. This entails integrating financial crime risk assessments into broader enterprise risk management frameworks, ensuring a comprehensive grasp of risks spanning all business lines and geographies. By adopting a risk-based approach, resources and efforts can be strategically allocated, prioritising regions and activities with heightened risk profiles.

Establishing centralised reporting mechanisms and governance structures further enhances transparency, accountability, and consistency in managing financial crime risks. Moreover, fostering cross-functional collaboration across various organisational domains—including compliance, risk management, legal, and operations—promotes alignment and coordination in addressing financial crime risks, facilitating a unified front against illicit activities across departments and regions.

Leveraging the FDM KYC PODs model to navigate global financial crime challenges

At FDM, we deploy agile teams to our clients who help them navigate the ever-changing financial crime landscape. Our AML-KYC PODs offer organisations an effective solution to mitigating financial crime and risk across borders with the following added benefits…

Are you ready to work with a talent solutions partner to take your global financial crime management to the next level? Contact FDM today to find out more about our KYC PODs model.